Greece in talks on extending debt repayment: source

By IBT Staff Reporter On 12/31/10 AT 10:40 AM

Greece is in talks with commercial banks on extending the repayment of its outstanding debt, in line with a similar plan to stretch out paying back its EU/IMF bailout, an Athens weekly reported on Friday.

Fears that the overborrowed country may restructure its debt after the 110 billion euro emergency funding ends in 2013 are keeping yield spreads at high levels, despite the government's repeated assurances that no such move is on the table.

More than 70 percent of Greece's outstanding debt is held in foreign portfolios.

The Realnews paper said former European Central Bank Vice-President Lucas Papademos, who currently advises Prime Minister George Papandreou, was handling the talks with banks and funds holding the debt-ridden country's bonds.

The finance ministry would not comment on the report.

The discussions on a parallel extension of the repayment period of the debt owed to the private sector are being conducted by ... Lucas Papademos who has been making rounds between Berlin, Franfurt, London and Brussels recently, the paper said without quoting any sources.

It said the plan for a mild restructuring calls for a repayment extension of 10 up to 30 years, with the focus on paper maturing in 2013 to 2015.

Greece will have until 2021 to repay its 110 billion euro ($145.7 billion) EU/IMF bailout loan, the country's finance minister said last month after an informal deal reached at a meeting of euro zone finance ministers.

Policymakers hope the move will help dilute fears that Athens will opt for debt restructuring after the three-year EU/IMF funding ends in 2013. An easier-to-service repayment plan can give the economy more time to return to growth.

Greece's public debt-to-GDP ratio is projected to hit 152.6 percent next year or 348 billion euros based on the government's 2011 budget.

In November, Papademos said he was against a debt restructuring in Greece or in Europe.

The debt restructuring that is currently debated is not a desirable solution, neither for Greece nor for the eurozone, he said in a speech in Athens. It is not necessary and it is not inevitable.

Greece's finance minister has consistently ruled out the possibility of debt restructuring, saying it is not on the table.

Yield spreads of Greek government bonds over German Bunds remain near peaks despite the fiscal progress Greece has made in recent months. On Friday the spread of 10-year Greek government paper stood at 960 basis points.

Athens is aiming to cut the budget deficit to 7.4 percent of GDP next year from 9.4 percent in 2011.